“This trend is expected to continue in 2023, with advanced economies barely advancing for the year, and emerging economies relatively flat from one year to the other as a result of the overall decline in global demand,” he said in a statement. “With respect to China, the sudden end of the zero-Covid policy is now likely to allow for a shallow recovery.”  However, households’ deteriorating confidence coupled with the unresolved difficulties in the housing sector are likely to weigh on the growth rebound.

Chetouane believes that China’s full and complete reopening is a double-edged sword for the global economy. Demand from China will first support the exports of developed markets and some emerging markets, partly mitigating the GDP growth decline expected for 2023. However, Chinese demand for energy and non-energy commodities could also bring a new layer of inflation, a potential headache for developed market central banks. “We therefore remain cautious and expect an average GDP growth of 4.0 per cent for 2023,” he said. 

China 
The double whammy of zero-Covid lockdowns and property sector crackdowns has driven China’s economy into a severe slowdown. Most economic indicators remain very weak: PMI indices, industrial production and, most importantly, retain sales contracted in 2022 for the first time since the data existed, Chetouane said.

Nevertheless, the sudden U-turn on its zero-Covid policy and the pro-growth stance of policymakers indicate a more pragmatic path since the 20th Party Congress which took place last October. 

“In our opinion, the Chinese administration has adopted a gradual approach to successfully manage the reopening process of the economy, restore confidence and avoid a “stop and go” dynamic,” Chetouane continued.

“We believe that the positive effects from the reversal in the health policy should start to clearly show up in economic data by next spring. China’s record $2.6 trillion rise in savings has fuelled “revenge spending” hopes in anticipation of a wave of pent-up demand,” he said.

However, the lingering uncertainty on the economic outlook may hinder consumers’ savings redeployment. “Consumers are likely to take a cautious approach as a result of the losses incurred over the past years of impaired economic growth and poor investment returns, especially if the problems on the housing front are not quickly resolved,” Chetouane concluded.